Article Sidebar

Download
Download PDF

Main Article Content

Abstract

Labor absorption is a key indicator for assessing an economy’s ability to optimally absorb labor and distribute income in order to improve public welfare and reduce poverty rates. This study aims to estimate the effects of education level (average years of schooling), minimum wage, domestic investment (DDI), and foreign investment (FDI) on formal and informal labor absorption in Indonesia from 2019 to 2024 using panel data regression with a Fixed Effects Model (FEM) approach. The regression results in Model 1 indicate that average years of schooling has a positive effect and the minimum wage has a negative effect on formal labor absorption, while domestic investment and foreign investment do not have a significant effect on formal labor absorption. Meanwhile, in Model 2, it was found that average years of schooling has a negative effect, minimum wage and foreign investment have a positive effect, while domestic investment has no significant effect on informal labor absorption. Therefore, the government is expected to formulate policies focused on improving the quality of education and workforce skills, controlling minimum wage increases in a proportionate manner, and encouraging labor-intensive investment t expand employment in the formal sector in Indonesia.

Keywords

formal labor absorption, informal labor absorption, average years of schooling, minimum wage, domestic investment, foreign investment, Fixed Effects Model

Article Details

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite
Arjuna Wahyu Permana Ajie, & Muhammad Anas. (2026). The Dualism of the Indonesian Labor Market: Between Investment, Wages, and Education Level. Economics and Digital Business Review, 7(2), 190–203. https://doi.org/10.37531/ecotal.v7i2.3863
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Asmara, G.D., Saleh, R., & Asmara, G.J. (2024). The effect of minimum wages on labor absorption in Indonesia in 2015-2020. Journal of Advances in Accounting, Economics, and Management , 1 (3), 1–11. https://doi.org/10.47134/aaem.v1i3.218
  2. Budiasih, JD, & Asmara, K. (2024). The influence of education, minimum wage, and regional gross domestic product (PDRB) on labor absorption in Banten Province 2012-2021. JEMSI (Journal of Economics, Management, and Accounting) , 10 (2), 826–836. https://doi.org/10.35870/jemsi.v10i2.2054
  3. Desanta, AP, & Aisyah, S. (2025). Exploring the employment of the informal sector in Indonesia and the factors that influence it. Majapahit Journal of Islamic Finance and Management (MJIFM) , 5 (1), 398–420. https://doi.org/10.31538/mjifm.v5i1.383
  4. Faruddin, HE, & Djamaluddin, S. (2025). The effect of provincial minimum wages on formal and informal workers in Indonesia. LOCUS Journal: Research and Community Service , 4 (6), 2898–2917. https://doi.org/10.58344/locus.v4i6.4122
  5. Faza, LDR, & Khusaini, M. (2024). The effect of minimum wages, education level, and age on labor absorption in East Java in 2017-2021. Journal of Development Economic and Social Studies , 3 (4), 1154–1165. https://doi.org/10.21776/jdess.2024.03.4.14
  6. Iksan, SAN, Arifin, Z., & Suliswanto, MSW (2020). The effect of provincial minimum wages, investment, and GRDP on labor absorption in Indonesia. Journal of Economics (Jie) , 4 (1), 42–55. https://doi.org/10.22219/jie.v4i1.9482
  7. Kawasaki, P. (2024). Analysis of labor absorption in Central Java Province. Economics, Finance, and Business Review , 1 (1), 47–58. https://doi.org/10.20885/efbr.vol1.iss1.art5
  8. Na'im, A., & Anas, M. (2025). The influence of human capital and wages on labor absorption in Indonesia. Sukowaskita: Research and Development Information Media , 1 (2), 75–90. https://jurnal.sukoharjokab.go.id/sukowaskita/article/view/19
  9. Pratama, IA, & Anis, A. (2022). The influence of foreign investment and domestic investment on labor absorption in Berau Regency 2005-2019. JKEP: Journal of Economic and Development Studies , 4 (3), 37–42. https://ejournal.unp.ac.id/students/index.php/epb/article/view/13766
  10. Prima, Julianisa, IA, & Amintara, DN (2026). The effect of investment, minimum wage levels, and GRDP on labor absorption in Sulawesi Island. Ikraith-Ekonomika Journal , 9 (1), 1460–1470. https://doi.org/10.37817/ikraith-ekonomika.v9i1.6422
  11. Putra, FW, Ariani, N., & Nofrian, F. (2022). Analysis of the relevance of foreign investment, domestic capital, and minimum wages to labor absorption in Indonesia 1990-2019. Indonesian Journal of Social Sciences , 3 (4), 708–719. https://doi.org/10.36418/jiss.v3i4.571
  12. Rachman, A., Muthalib, A.A., Rosnawintang, & Harafah, L. (2022). The influence of domestic investment and foreign investment on sectoral labor absorption in Southeast Sulawesi Province. Journal of Development Economic Progress (JPEP) , 7 (2), 156–164. https://doi.org/10.33772/jpep.v7i2.22541
  13. Rahmah, AM, & Julianisa, IA (2020). The influence of education level, minimum wage, and GRDP on labor absorption in districts/cities in West Java province. Ikraith-Ekonomika Journal , 5 (3), 246–254. https://doi.org/10.37817/ikraith-ekonomika.v5i3.2460
  14. Rohadin, & Nurcahyo, A. (2020). The effect of investment and average length of schooling on labor absorption in Cirebon Regency in 2013-2018. Jurnal Cendekia Jaya , 2 (2), 114–132. https://doi.org/10.47685/cendekia-jaya.v2i2.77
  15. Ruslan, W. D. A. P., & Pratomo, D. S. (2025). The effect of GRDP, minimum wages, and education on workforce absorption in regencies and cities in East Java. JDESS (Journal of Development Economic and Social Studies), 4(1), 91–109. https://doi.org/10.21776/jdess.2025.04.1.08
  16. Sulaiman, M. M., Tope, P., Parinding, K. A., Pembonan, L., Ichwan, M., & Mubayyin, M. A. (2026). The effect of human development index, domestic investment (PMDN), and foreign direct investment (PMA) on labor absorption in the Sulawesi Region, 2016-2024. International Journal of Health, Economics, and Social Sciences (IJHESS), 8(2), 1606–1612. https://jurnal.unismuhpalu.ac.id/index.php/IJHESS/article/view/10920
  17. Tanjung, PS, Sambodo, H., & Rosiana, M. (2024). Factors influencing employment opportunities in Indonesia. Ekuilnomi: Journal of Development Economics , 6 (2), 150–158. https://doi.org/10.36985/r818n720
  18. Wijayanti, D., & Mufarrah, R. (2024). Analysis of the impact of GRDP, investment, average length of schooling, and minimum wages on employment opportunities: An empirical study in Central Java 2018-2022. Journal of Business Applications , 21 (1), 553–560. https://doi.org/10.20885/jabis.vol21.iss1.art6